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High Court rejects another application under section 68 of the Arbitration Act 1996 as a challenge to an arbitral award on factual, rather than procedural grounds

Sonatrach, the Algerian state oil company, had applied to the High Court to set aside an arbitration award dated 30 April 2013 (the “Award”), conducted under the auspices of the International Chamber of Commerce. In that award, the arbitral tribunal held that Sonatrach was in breach of contract and liable in damages to Statoil (a subsidiary of the Norwegian oil company Statoil ASA).

Sonatrach had resisted Statoil’s claim on a variety of grounds, all of which were rejected by the tribunal in its Award. One ground (and the only ground relevant to Sonatrach’s application) was the contention that the contracts at issue were not effective, because a condition precedent had not been fulfilled, namely the approval of the Algerian Government.

Statoil had successfully applied to the High Court for an order granting permission to enforce the Award. Along with the Award itself, Sonatrach also sought to challenge that order, on grounds that were dismissed by Flaux J.

The basis of the challenge

Section 68 of the Arbitration Act 1996 provides for an exhaustive list of circumstances in which a tribunal award may be overturned on the grounds of “serious irregularity”. A serious irregularity for the purposes of section 68 is a procedural flaw which is so serious that the award promulgated by the arbitral tribunal must be considered tainted, and overturned or not enforced). The focus of the enquiry under section 68 is due process, not the correctness of the tribunal’s decision (Abuja International Hotels v Meridian SAS [2012] EWHC 87 (Comm)).

Sonatrach’s challenge to the Award was framed solely in terms of section 68(2)(a), an alleged failure of the tribunal to comply with its general duty under section 33 of the 1996 Act. Section 33 provides that the Tribunal must:

“(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined”.

Sonatrach complained that the tribunal had acted in breach of its duty under section 33 in two material ways, both relevant to the question of whether the condition precedent had been fulfilled:

Firstly, by overlooking a critical piece of evidence, a letter from the Director-General of Hydrocarbons of the Algerian Ministry of Energy and Mining; and

Secondly, that the tribunal had mischaracterised the evidence of two of Statoil’s witnesses in concluding that Statoil had received assurances from Sonatrach on the day the agreements were signed that government approval had been obtained.

In support of this submission, Sonatrach relied on certain dicta of Toulson J in his judgment in Arduina Holdings BV v Celtic Resources [2006] EWHC 3155 (Comm). At paragraph 46 of his judgment, Toulson J suggested that, notwithstanding the broadly accepted view that section 68 is targeted at procedural flaws, in an exceptional case the court could be entitled to interfere under section 68 where the tribunal has reached the wrong findings of fact:

“The assertion that the arbitrator failed to take any or proper consider[ation] of the evidence could, in an exceptional case, give rise to a challenge under section 68, based on the general duty of an arbitrator under section 33 if, for example, an arbitrator genuinely overlooked evidence that really mattered, or got the wrong end of the stick in misunderstanding it”.

The judgment of the Court

Flaux J rejected these submissions. He noted that Toulson J’s comments were obiter, andran contrary to accepted principle: it was not possible to see how the court could determine whether the tribunal has overlooked evidence without an analysis of the tribunal’s evaluation of the evidence. This had been plainly established as an impermissible exercise under section 68. Sonatrach’s application was misconceived.

Section 68, Flaux J held, at paragraph 11,

“is designed as a long‑stop available only in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected. This point, that section 68 is about whether there has been due process, not whether the tribunal “got it right”, is of particular importance in the present case, where, upon close analysis, the claimants’ real complaint is that they consider that the tribunal reached the wrong result, which is not a matter in relation to which an arbitration Award is susceptible to challenge under section 68”.

Comment

The reality was that this was “another case, of which there are already far too many […] where a party is seeking to use section 68 to challenge findings of fact made by the tribunal”. It is interesting to note that this trend has continued notwithstanding the new powers vested in the Commercial Court to deal with section 68 challenges summarily, including on paper, and with the possibility of adverse costs consequences where an applicant challenges an arbitral award on grounds which are ultimately misconceived or without merit (see paragraph O8.8 of the Admiralty and Commercial Court Guide, in force from April 2013). Time will tell as to whether Commercial Court judges are required to take any further steps to discourage such applications, and preserve the integrity of arbitral awards and the enforcement process provided for by the 1996 Act.